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The Impact of Rule 144A Debt Offerings Upon Bond Yields and Underwriter Fees

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  • Miles Livingston
  • Lei Zhou
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    Abstract

    Securities issued under Rule 144A do not have to file a public registration statement with the Securities and Exchange Commission, but can be sold only to qualified financial institutions. This paper examines industrial and utility bonds issued under Rule 144A. Rule 144A issues are found to have higher yields than publicly issued bonds after adjusting for risk. Yield premiums are higher if the issuer does not file periodic financial statements with the SEC. The yield premiums of Rule 144A issues may be due to lower liquidity, information uncertainty, and weaker legal protection for investors. Bonds issued under Rule 144A may have registration rights, which require the issuer to exchange the bonds for public bonds within a stated period, or pay higher yields. While high-yield bonds usually have registration rights, we find that the majority of investment-grade bonds do not. Registration rights have a greater impact on yields for high-yield than for investment-grade bonds. Underwriter fees for Rule 144A issues are not significantly different from underwriter fees for publicly issued bonds.

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    Bibliographic Info

    Article provided by Financial Management Association in its journal Financial Management.

    Volume (Year): 31 (2002)
    Issue (Month): 4 (Winter)
    Pages:

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    Handle: RePEc:fma:fmanag:livingston02

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    Cited by:
    1. Kalimipalli, Madhu & Ramchand, Latha, 2006. "Does the method of entry matter? Evidence from Indian ADRs and GDRs," Pacific-Basin Finance Journal, Elsevier, vol. 14(4), pages 349-366, September.
    2. Neil Esho & Ian Sharpe, 2004. "Eurobond Underwriter Spreads," FMG Discussion Papers dp503, Financial Markets Group.
    3. Luigi Zingales, 2009. "The Future of Securities Regulation," Journal of Accounting Research, Wiley Blackwell, vol. 47(2), pages 391-425, 05.
    4. Christian Andres & André Betzer & Peter Limbach, 2013. "Underwriter Reputation and the Quality of Certification: Evidence from High-Yield Bonds," Schumpeter Discussion Papers SDP13006, Universitätsbibliothek Wuppertal, University Library.
    5. Endo, Tadashi, 2008. "Broadening the offering choice of corporate bonds in emerging markets : cost-effective access to debt capital," Policy Research Working Paper Series 4655, The World Bank.
    6. Krishnan, Karthik, 2013. "Commercial banks getting underwriting business: Tying or business building?," Journal of Economics and Business, Elsevier, vol. 66(C), pages 47-75.
    7. Anna Kovner & Chenyang Wei, 2012. "The private premium in public bonds," Staff Reports 553, Federal Reserve Bank of New York.
    8. Andres, Christian & Betzer, André & Limbach, Peter, 2014. "Underwriter reputation and the quality of certification: Evidence from high-yield bonds," Journal of Banking & Finance, Elsevier, vol. 40(C), pages 97-115.
    9. Resnick, Bruce G., 2012. "Investor yield and gross underwriting spread comparisons among U.S. dollar domestic, Yankee, Eurodollar, and global bonds," Journal of International Money and Finance, Elsevier, vol. 31(2), pages 445-463.

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